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Reasons Why Carlisle (CSL) Stock Should Be Avoided for Now

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Carlisle Companies Incorporated (CSL - Free Report) seems to have lost its sheen to the end-market challenges caused by the pandemic. Also, forex woes, high restructuring charges and other headwinds are concerning for the company. Notably, its price performance has been weak and its earnings estimates have been lowered lately, pointing toward bearish sentiments for the stock.

The company is based in Scottsdale, AZ, and has a market capitalization of $6.6 billion. It belongs to the Zacks Diversified Operations industry. The company presently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past three months, its shares have gained 2.2% compared to 8% growth for the industry. Also, the S&P 500 expanded 4.7% during the same timeframe.


Below we have discussed why it is prudent to avoid Carlisle.

Pandemic-Led Headwinds: Carlisle’s earnings in second-quarter 2020 decreased 38.5% from the year-ago quarter on a 22.1% year-over-year decline in revenues and weak margin results. Organic sales in the quarter were down 23.8% year over year on weakness in end markets caused by the pandemic. On a segmental basis, organic sales for the four segments Carlisle Construction Materials (“CCM”), Carlisle Interconnect Technologies (“CIT”), Carlisle Fluid Technologies (“CFT”), and Carlisle Brake & Friction (“CBF”) were down 19.7%, 33.5%, 34.2% and 31.1%, respectively, from the year-ago quarter.

Being still wary of the pandemic-related uncertainties in the quarters ahead, the company refrained from providing revenues and earnings projections for 2020. It believes that weakness in the commercial aerospace business will continue to hurt the CIT segment in the third quarter of 2020. The segment’s sales are predicted to decline in excess of 20% in the third quarter.

For the CBF segment, the company expects third-quarter revenues to decline in the mid-teen range. Further, weakness in the automotive market across the globe is concerning for the CFT segment. The segment’s third-quarter sales are predicted to decline 20%.

The Zacks Consensus Estimate for revenues in the third quarter of 2020 is pegged at $1.13 billion, suggesting a decline of 12.1% from the year-ago reported figure. Also, the estimate for 2020, pegged at $4.24 billion, suggests a decline of 11.9% from the previous year’s reported figure.

However, the company’s focus on strengthening the medical technology platform, solid product offerings and gains from acquired assets might come in as a relief.

Risks From International Operations: The company is exposed to risks — including geopolitical issues, unfavorable movements in foreign currencies and others — arising from international operations. Notably, it has a presence in the Middle East, Europe, the United States, Asia, Mexico, Canada, Africa and Latin America.

In second-quarter 2020, the company’s sales were lowered to the extent of 0.2% on forex woes, while the same hurt first-quarter sales by 0.3%.

Abilities to Address Financial Obligations: At the end of second-quarter 2020, the company’s long-term debt was $2,078 million and total debt to total capital was at 45.2%. High debts and ability to repay financial obligations is concerning. A declining trend is visible in its times interest earned ratio over the past few quarters.

Notably, Carlisle’s times interest earned was 7.6X at the end of the second quarter versus 9.3X at the end of the first quarter of 2020 and 10.0X at the end of the fourth quarter of 2019.

Earnings Estimate Trend: The company’s earnings estimates have been revised downward in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $5.60 for 2020, reflecting a decline of 3.4% from the 60-day-ago figure. The same for 2021 has declined 0.9% to $7.43 during the same period.

It is worth noting here that two downward revisions have been recorded for 2020 and 2021 in the past 60 days. There was no upward revision for both years.

In addition, earnings estimates for the third quarter of 2020 are pegged at $1.73 per share, down from $1.90 mentioned 60 days ago. There were two downward and no upward revisions in the past 60 days.

Carlisle’s Price Performance Versus Three Peers

The company has underperformed three companies in the industry — including 3M Company (MMM - Free Report) , ITT Inc. (ITT - Free Report) and Honeywell International Inc. (HON - Free Report) — in the past three months. During the period, 3M, ITT and Honeywell’s shares have gained 3.1%, 1.5% and 11.4%, respectively.

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